Kling v. Fidelity Management Trust Co.

323 F.Supp.2d 132

John G. KLING, personally and in a representative capacity for the Harnischfeger Industries Employees' Savings Plan, Plaintiff, v. FIDELITY MANAGEMENT TRUST CO., Francis M. Corby, Jr., et. al., Defendants.

No. 01-CV-11939-MEL.

United States District Court, D. Massachusetts.

June 23, 2004.

COPYRIGHT MATERIAL OMITTED

Wilber H. Boies, McDermott, Will & Emery, Chicago, IL, for L. Donald LaTorre, Leonard E. Redon, Ralph C. Joynes, Stephen M. Peck, Francis M. Corby, Jr., Donna M. Alvarado, Eugene L. Fuhrmann, James C. Benjamin, Jeralyn J. Meyer, Joseph A. Podawiltz, Kim R. Kodousek, Somerset R. Waters, Stephen W. Skatrud, Jean-Pierre LaBruyere, Defendants.

Brian P. Brooks, O'Melveny & Myers, Washington, DC, James S. Dittmar, Goodwin Procter LLP, Boston, MA, Robert N. Eccles, O'Melveny & Myers, Washington, DC, James O. Fleckner, Goodwin Procter LLP, Boston, MA, for Fidelity Management And Research Corporation of Massachusetts, Defendant.

Ellen M. Doyle, Malakoff, Doyle & Finberg, P.C., Pittsburgh, PA, Robert D. Friedman, Perkins, Smith & Cohen, LLP, Boston, MA, C. Thomas Mason, Tucson, AZ, Harry S. Miller, Perkins, Smith & Cohen, LLP, Boston, MA, Matthew J. Tuttle, Perkins, Smith & Cohen, LLP, Boston, MA, Gerald S. Walsh, Peter J. Walsh, Walsh & Keating, S.C., Wauwatosa, WI, for John G. Kling, Plaintiff.

Steven W. Kasten, McDermott, Will & Emery, Boston, MA, for Harnischfeger Industries, Inc. Board of Directors Pension Committee, Harnischfeger Industries, Inc. Pension and Investment Committee, Joy Global Retirement Savings Plan, Joy Global Inc., Donna M. Alvarado, Eugene L. Fuhrmann, Francis M. Corby, Jr., James C. Benjamin, Jean-Pierre LaBruyere, Jeralyn J. Meyer, Joseph A. Podawiltz, Kenneth A. Hiltz, Kim R. Kodousek, L. Donald LaTorre, Leonard E. Redon, Ralph C. Joynes, Somerset R. Waters, Stephen M. Peck, Stephen W. Skatrud, Defendants.

Brian W. Robinson, McDermott, Will & Emery, Boston, MA, for L. Donald LaTorre, Leonard E. Redon, Ralph C. Joynes, Stephen M. Peck, Eugene L. Fuhrmann, Francis M. Corby, Jr., James C. Benjamin, Jeralyn J. Meyer, Joseph A. Podawiltz, Kim R. Kodousek, Somerset R. Waters, Stephen W. Skatrud, Donna M. Alvarado, Jean-Pierre LaBruyere, Defendants.

Nancy G Ross, McDermott, Will & Emery, Chicago, IL, for Donna M. Alvarado, Leonard E. Redon, Ralph C. Joynes, Stephen M. Peck, Eugene L. Fuhrmann, Francis M. Corby, Jr., James C. Benjamin, Jeralyn J. Meyer, Joseph A. Podawiltz, Kim R. Kodousek, Somerset R. Waters, Stephen W. Skatrud, Jean-Pierre LaBruyere, L. Donald LaTorre, Defendants.

MEMORANDUM AND ORDER

LASKER, District Judge.

John Kling, an employee of Harnischfeger Industries, Inc. ("Harnischfeger"), sues Fidelity Management Trust Company ("Fidelity"), a number of individually-named Harnischfeger directors, officers, and employees,¹ the Harnischfeger Industries Employees' Savings Plan ("Plan"), the Harnischfeger Industries, Inc. Pension and Investment Committee ("Investment Committee"), and the Harnischfeger Industries, Inc. Board of Directors Pension Committee ("Pension Committee") for breach of fiduciary duty and prohibited transactions in violation of ERISA §§ 404(a) and 406(b), 29 U.S.C. §§ 1104(a), 1106(b). The non-Fidelity defendants are referred to herein as the "Harnischfeger Defendants."

Certain of the Harnischfeger Defendants move to dismiss Counts II and IV of the Second Amended Complaint, and to dismiss the Plan as a nominal defendant. Fidelity moves to dismiss Counts III and IV. Kling moves to disqualify McDermott, Will & Emery from representing the Plan.

The Harnischfeger Defendants' Motion to Dismiss is GRANTED IN PART, and DENIED IN PART. Fidelity's Motion to Dismiss is DENIED. Kling's Motion to Disqualify is DENIED AS MOOT.

I. Procedural Background²

Kling filed his Complaint on November 9, 2001, and filed a First Amended Complaint ("FAC") on December 19, 2001. Fidelity and the Harnischfeger Defendants subsequently moved to dismiss; these motions were denied on June 3, 2003. On October 31, 2003, Kling moved to file a Second Amended Complaint ("SAC"), and the motion was granted upon Defendants' assent.

The SAC adds the following defendants (the "New Defendants") to the action: Joy Global Inc. f/k/a Harnischfeger Industries, Inc.; the Plan; the Investment Committee; Kenneth Hiltz, an individual member of the Investment Committee who was not named in the FAC; the Pension Committee; and unnamed Does 1 through 15, identified in the body of the Complaint as "additional Savings Plan Fiduciaries who may be identified during the discovery process of this lawsuit." The first three counts of the SAC are for breach of fiduciary duty and prohibited transactions in violation of ERISA §§ 404(a) and 406(b): Count I is directed at the Investment Committee and its members, Count II against Harnischfeger, the Pension Committee, and the Pension Committee members, and Count III against Fidelity. Count IV is a claim for relief against all defendants for co-fiduciary liability under ERISA § 405 and against Harnischfeger under agency principles.

II. Harnischfeger Defendants' Motion to Dismiss

A. Statute of Limitations

The New Defendants move to dismiss on the grounds that Kling's allegations are time-barred.

The limitation period for ERISA breach of fiduciary duty claims is governed by 29 U.S.C. § 1113(a), which provides, in pertinent part:

No action may be commenced under this subchapter with respect to a fiduciary's breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of

(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation, or

(2) three years after the earliest date on which the plaintiff has actual knowledge of the breach or violation;

except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.

29 U.S.C. § 1113(a) (emphasis added). Kling has not alleged fraud, and thus the question whether to apply the three-year or six-year statute of limitations hinges on whether Kling had "actual knowledge of the breach or violation" at some point prior to October 31, 2000 (i.e., more than three years before the New Defendants were added).³

There is a circuit split regarding the definition of "actual knowledge" in this context. In the Third and Fifth Circuits, "actual knowledge of the breach or violation requires that a plaintiff have actual knowledge of all material facts necessary to understand that some claims exist, which facts could include necessary opinions of experts, knowledge of a transaction's harmful consequences, or even actual harm." Gluck v. Unisys Corp., 960 F.2d 1168, 1176 (3d Cir.1992). See also Maher v. Strachan Shipping Co., 68 F.3d 951, 954 (5th Cir.1995). Under this approach, which may be termed the "legal claims" approach, it must be established that a plaintiff actually knew not only of the events that occurred but also that those events supported a claim of breach of fiduciary duty or violation under ERISA. Richard B. Roush, Inc. Profit Sharing Plan v. New England Mut. Life Ins. Co., 311 F.3d 581, 585 (3d Cir.2002). Other circuits have held that actual knowledge merely requires knowledge of the underlying facts that form the basis for the claim. See, e.g., Wright v. Heyne, 349 F.3d 321, 328 (6th Cir.2003); Martin v. Consultants & Administrators, Inc., 966 F.2d 1078, 1086 (7th Cir.1992); Brock v. Nellis, 809 F.2d 753, 755 (11th Cir.1987).

Defendants urge the adoption of the "underlying facts" approach, and argue that Kling had actual knowledge of such facts by April 27, 1998, when Harnischfeger first disclosed the existence of accounting irregularities. Defendants further contend that even under the "legal claims" approach, Kling's complaint is time-barred as to the New Defendants because Kling exhibited actual knowledge of his legal claims in a Proof of Claim that he filed with the Bankruptcy Court and in an affidavit he submitted to the National Labor Relations Board ("NLRB") more than three years prior to the filing of the Second Amended Complaint.

Kling urges the adoption of the "legal claims" approach, and argues that he had no actual knowledge of his legal claims such as to trigger the three-year statute of limitations. He further contends that the claims are timely even under the "underlying facts" approach because his knowledge of the events relating to the financial decline of the company, without additional knowledge about what the defendants did to monitor the prudence of investing in Harnischfeger stock, would not establish that he had actual knowledge of the fiduciary breaches alleged in the Complaint. In this regard he distinguishes his situation from that described in Martin v. Consultants & Administrators, Inc., 966 F.2d 1078 (7th Cir.1992), where the plaintiff was the United States Secretary of Labor, who had conducted an extensive investigation prior to bringing suit. Kling emphasizes that he is a machine operator by trade, that he lacks the investigative powers of the Department of Labor ("DOL"), and that he has yet to conduct any discovery regarding the breaches alleged.

B. Discussion

The First Circuit has not ruled on whether a plaintiff must have actual knowledge of the legal claims or merely the facts underlying those claims, and it is not necessary to do so here. Under either approach, defendants have failed to establish Kling's actual knowledge sufficient to trigger the three-year statute of limitations. To establish actual knowledge, "it is not enough that [plaintiffs] had notice that something was awry; [plaintiffs] must have had specific knowledge of the actual breach of duty upon which [they sue]." Brock v. Nellis, 809 F.2d 753, 755 (11th Cir.1987) (emphasis added)....